Notes 1 Flashcards
Profitability Index
PV Benefits /
Cost
Dollars to break even
Annual Fixed Costs /
Contribution Margin Ratio
Contribution Margin Ratio
(Sales - Variable Cost) /
Sales
Payback
Investment /
Annual CF
OR
Investment /
(CF * (1+t%)) + (Investment / N * t%)
Discounted Payback = 1st discount CF to PV then above operation
Payback Period
Initial Investment/
Increase in after-tax CF or Annual CF
Accounting Rate of Return
Annual Net Income /
Average Investment or Initial Investment
OR
Net Cash inflow - Depreciation /
Investment
Net Present Value
PV of Future CF - Required Investment
Includes Salvage, NOT Depreciation unless taxes apply, then include the tax benefit
Internal Rate of Return
PV of Investment today = TVMF * Cash Flows
OR
PV Factor = Investment / Cash Flows
Interest
Principal * Rate * Time
Gross Domestic Product (GDP)
~GICE~
Gov’t Spending
+ Investment by Private Industry
+ Consumption (Consumer Spending)
+ Exports
OR
Net Income
+ Indirect Business Taxes
+ Capital Consumption Allowance
+ Foreign Factor Income
DOES NOT INCLUDE:
Financial Transactions
Second-hand Sales
Net Domestic Product (NDP)
GDP
- Capital Consumption Allowance
- Depreciation
Net National Income
Net Domestic Product (NDP)
- Foreign Factor Income
- Indirect Business Taxes
+ Net Income Earned Abroad
National Income
Compensation of Employees \+ Rental Income \+ Interest Income \+ Proprietor's Income \+ Corporate Profits
OR
Business Income \+ Passive Income \+ Taxes \+ Employee Salaries \+ Depreciation \+ Foreign Income Adjustments
Objectives of COSO Internal Controls (IC)
- Operations
- Reporting
- Compliance
NOT Strategic
Objectives of COSO Enterprise Risk Management (ERM)
- Operations
- Reporting
- Compliance
- Strategic
Components of COSO Internal Controls (IC)
~ Control Activity Risk through Information & Monitoring of the Control Environment ~
~CRIME~
- Control Activities
- Risk Assessment
- Information & Communication
- Monitoring Activities
- Control Environment
Components of COSO Enterprise Risk Management (ERM)
~ Risk Assessment Internally & Objectively Controls the Risk Response through Information & Monitoring of Event Identification ~
~RIO CRIME~
- Risk Response
- Internal Environment
- Objective Setting
- Control Activities
- Risk Assessment
- Information & Communication
- Monitoring
- Event Identification
Marginal Propensity to Save
Change in Savings /
Change in Income
Marginal Propensity to Consume
Change in Spending /
Change in Income
Price Elasticity of Demand
% Change in Quantity Demanded /
% Change in Price
Income Elasticity of Demand
% Change in Quantity Demanded /
% Change in Income
Difference between
Demand Pull Inflation
Cost Push Inflation
Demand Pull = increased spending, demand increasing (shifts right)
Cost Push = increased cost of production, supply decreases (shifts left)
Calculate GDP using the Income Approach
National Income \+ Indirect Taxes - Other & statutory discrepancy = Net National Product (NNP) \+ Consumption of Fixed Capital = Gross National Product (GNP) \+ Payments of factor income to other countries - Receipts of labor income from other countries = Gross Domestic Product (GDP)
Calculate GDP using the Expenditure Approach
Personal Consumption Expenditures \+ Gross private domestic fixed investment \+ Government Purchases - Net Exports - Changes in business inventories = Gross Domestic Product
Economic Cost
Explicit + Implicit Cost
AKA
Lateral Cost + Opportunity Cost
Economic Profit
Revenue - Economic Cost
Accounting Profit
Revenue - Accounting Cost
Accounting Cost
Explicit Cost (aka Actual Cost)
Balanced Scorecard
~ CLIFf ~
~ The Balanced Scorecard can jump off a CLIFF ~
- Customer
- Learning & Growth
- Internal Business Processes
- Financial
Business Risk
~ MICS ~
- Market Risk
- Interest Rate Risk
- Credit/Default Risk
- Sector Risk
How is Abnormal Spoilage treated
Charged against Period Income (i.e. expensed) as a separate component of COGS
Types of Conforming Cost vs Non-conforming costs
~ CPA NIcE ~
Conforming:
Prevention = employee training, preventative maintenance, supplier education
Appraisal = quality inspectors, materials inspection
Non-conforming:
Internal = scrap
External = product recalls, processing product returns
Relative Level of Risk
Standard Deviation /
Expected Return
R Squared
Coefficient of determination
Proportion of the total variation of the dependent variable explained by the independent variable
P Value
Likelihood that tested data could have occurred by chance
Standard Error
Measure of the standard deviation
Average variability of a sampling distribution
T Statistic
Used in hypothesis testing
Used in computation of confidence levels
Economic Rate of Return on common stock
(Dividends + Change in price) /
Beginning price
